New Home Owners And Snagging Forum

Advice on buying a brand new home => General discussion => Topic started by: Philofacts on March 21, 2013, 12:56:13 pm

Title: Budget 2013 - Help To Buy for house builders not buyers
Post by: Philofacts on March 21, 2013, 12:56:13 pm
The new 'Help to Buy' scheme was described by George Osborne in his 2013 Budget speech as a "dramatic intervention in the housing market."
The Help-to-Buy scheme is available on all newly-built homes up to £600,000 and there is no cap on how much you can earn to be eligible.

"Foolish" is a word I would use! - As always, the devil is in the detail - not the headlines!

Help to Buy: Equity Loan
From 1st April 2013, people who want to buy a new home will be able to 'take advantage' of a £3.5bn equity loan scheme from the government, similar to the First Buy scheme, but now available to everyone, not just first time buyers. Under the scheme buyers must be able to put down a 5% deposit and can then borrow up to 20% of the value of the property, (maximum £120,000) interest-free for the first five years. After 5 years the loan will attract a fee of 1.75%, which will rise each year by the RPI inflation plus 1%.

On a £100,000 loan under the scheme:
Years 1 - 5  Free : Year 6 a fee @1.75% = £,1750 : Year 7 the fee would be 3.5% = £1,811 rising to £2,149 by year 10 if inflation remained at a low 2.5%.
It is unlikely to be lower and could be much higher!
However if inflation was 5% then the year 7 fee due would be £1,855 and the fee due in year 10 fee would be £2,481 - over £200 a month in addition to the mortgage interest and repayment!

Another sting in the tail!
The equity loan must be repaid when the property is sold or when the mortgage is repaid, with the amount repaid based on the value of the property at the time of repayment.  However, the loan can be repaid in part of in full, without selling the home by either paying 10 per cent or 20 per cent of the total amount of the loan (known as staircasing) as long as the loan is worth at least 10 per cent of the market value after the transaction.
To pay back the full loan amount, you will need to discuss this with your lender and the post sales agent.
So buyers of new homes could find themselves in a home they that is difficult to sell, whilst being hit by ever increasing punitive charges for a government loan at the mercy of inflation.  At least you can get a mortgage with a fixed rate!

The equity loan is only available on new build properties ie. newly built homes, including conversions, that have never been occupied, provided by developers that are registered with the scheme, up to a maximum value of £600,000.

The treasury estimates that the £3.5billion scheme will help up to 74,000 new home buyers.
We are of the opinion that the government and the house builders will be the main beneficiaries and with house builder's shares closing up 5% on the announcement, the markets did too.

The government must therefore levy a windfall tax on all house builders making in excess of a 10% profit whilst the scheme is in operation, to prevent house builders cashing in on the extra demand and raising their prices as financing a new home becomes easier.

Help to Buy:  Mortgage Guarantee
You don't need to buy a poor quality new build home to get on the housing ladder!
The NewBuy government mortgage guarantee scheme is now being extended to all properties from January 2014 and will run for three years.
To qualify buyers need a deposit of at least 5% but less than 20%. The government will then underwrite a portion of the home loan for lenders, enabling buyers a greater access to mortgages, even those with a small deposit.  It will provide lenders with the option to purchase a Government guarantee that compensates them for a portion (80%) of their losses in the event of foreclosure.
The Government will charge a commercial fee for the provision of the guarantee which will be valid for seven years.

The scheme exposes the UK taxpayer to a potential liabilities of £130bn with people buying both new homes and older properties with small deposits giving cause for concern, especially in the event of higher interest rates or a property crash, both quite likely!

It is inexplicable that given the capacity and expertise in the private mortgage insurance sector, the government has not considered involving private mortgage insurers to reduce the risk to UK taxpayers. Especially as irresponsible lending caused the financial crisis, this now places the British taxpayer at unnecessary risk and leaves the State in the hands of the banks when it comes to ensuring prudent lending standards are maintained under the new extended scheme.

Both measures do nothing to address the underlying issues of a shortage of new housing and overpriced land values.
It is envisaged that the UK needs to build around 270,000 new homes each year; yet in 2012 there were only 105,090 new homes started.
Title: Re: Budget 2013 - Help for house builders not buyers
Post by: The Prophet on March 27, 2013, 09:19:30 am
Many house builders will probably display the 80% equity share as "the price" to disguise the poor value that the 100% price of new homes are.
Add in the fact that you are even paying Stamp Duty on the government's share of your new home and  the deal looks even less attractive!

Finally, if this is the same as FirstBuy, this is a government shared equity.
When the loan is part of fully repaid, and to do so the home will need to be re valued at that time, the government will receive 20% of any increase in value of the proportion it owns.
In the meantime you pay an annual fee which increases each year, linked to inflation plus 1%.
Heads you lose, tails they win!
Title: Re: Budget 2013 - Help To Buy for house builders not buyers
Post by: rj1423ah on May 03, 2013, 05:35:22 pm

Can 80% of the purchase price be financed without a mortgage and still qualify for the 20% loan? e.g. loans from friends and family?
Title: Re: Budget 2013 - Help To Buy for house builders not buyers
Post by: Philofacts on May 04, 2013, 07:40:26 am
The actual fine print is still being written for this ill-thought out scheme.
However, the intention was to enable buyers (of only new homes) to get a 75% mortgage and therefore benefit from the better rates offered by lenders for lower equity loans.

I would think that 'friends and family' can help with the 5% the buyer needs to find, but beyond this level the 20% government loan would reduce proportionally.